Evidence of economies of scale in pension fund administrators

Authors

  • Ernesto Miranda Radic Universidad de Chile

Abstract

The existence of economies of scale in the pension funds administrators (administradoras de fondos de pensiones, AFPs) is tested. To that end, lineal and logarithmic functional specifications -both direct and inverse- are explored, eventually selecting the direct logarithmic functional structure. This specification corresponds to an indirect total cost function derived from a generalized Cobb Douglas production function. Data is processed in time series, cross section and pooling of observations. Cross section and pooling analyses produce estimates consistent with expectations, thus providing support to the hypothesis. Time series analyses, on the other hand, do not produce adequate outcomes but in the case of two AFPs. One of the conforms to expectations and the other one does not. These findings provide conditional support to the hypothesis tested. They also highlight -given the relevance for public policy of this phenomenon- the need to seek further with the aim ti elucidate the shortcomings of this study.

Keywords:

Pension fund administrators, Chile, Economies of scale, Direct logarithmic functional structure